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Google Profit Surges as Marketers Return to Search

Giant Says YouTube Will Be a 'Great Business for Us'

NEW YORK (AdAge.com) -- Search giant Google took in $5.09 billion in revenue for the three months ending on June 30, marking a relatively easy 25% gain over the same period last year, given the weakened stature of the online ad market at the time.

But despite a $2.37 billion profit, up 34% from last year, its stock dipped a bit in after-market trading and has sunk 21% since January. Investors have clearly shown concern over Google's short-term growth rate, and in a tacit acknowledgment of that unease, the company touted its aggressive moves to go beyond its core business of search, especially display and mobile advertising.

On the company's call for investors, Chief Financial Officer Patrick Pichette said the company is "very happy with the results -- it really paints a picture that we're very confident of our future." He further highlighted that the growth of the display market and Google's aggressive investments in this area.

In advance of the call, Google told The Wall Street Journal that it had signed a two-year display ad partnership with Omnicom group that will funnel hundreds of millions of ad dollars to the Mountain View company.

"Display buying has traditionally been about advertisers buying sites, but they are shifting to buying audiences," explained head of global sales Nikesh Arora on the call. "It's no longer about buying Tiffany.com or buying NYTimes.com -- advertisers want to buy 18-35 year-olds who are savvy, and it makes no sense for an advertiser to buy across seven different networks. Advertisers want to buy from a one-stop shop, and that is what Omnicom is working with us on."

Google recently acquired Invite Media, a company that specializes in software allowing advertisers to buy across multiple advertising networks, or what is known as a "demand-side platform." Though he did not mention that acquisition, Mr. Arora suggested a trading desk-type system would be required to streamline the process for advertisers, which accurately describes how Invite Media's software operates. "It allows very effective buying across the network," he said of Google's latest display efforts, "and every player in that ecosystem can get their fair share."

Search advertising, meanwhile, has increased largely due to a recovery in cost-per-click fees, the basis for search pricing. Google reported a 15% increase in total paid click fees over last year, but the average price per-click only increased 4% over the same period, suggesting a flattening of base costs for search advertising.

Pichette said the company spent $100 million defending the Viacom copyright case, in which the company accused YouTube execs of turning a blind eye to copyright infringement around the time Google acquired the company in 2005. Mr. Pichette said it was money well spent.

"We love that Viacom ruling!" he quipped. Asked if the ruling would allow Google to better monetize YouTube moving forward, Mr. Pichette demurred. "But what I will say is it gives us more room for experimentation."

Company executives said that, overall, as the total market of display advertising matures, the ads themselves need to improve as well. "We have to now keep getting advertisers to give us quality video advertising," Mr. Arora explained, suggesting that online video environment would allow for interactive and targeted advertising, as opposed to the flat commercials typical of TV. "As we get more personalization and more interactivity, we'll create more monetization opportunities."

YouTube represents the biggest growth opportunity for Google in terms of display advertising, but it declined to give more detail on the video site's efforts to convert its massive global audience into a profitable business.

"We're incredibly pleased by its trajectory," Mr. Pichette said of YouTube. "It's 2 billion views per day. Top brand advertisers showing up for it. It's a great business for us."